The Kroger Co. has announced a merger with Chicago-based meal kit company Home Chef in a deal the retailer said will “revolutionize how families shop for, prep and cook their meals.”
Kroger said the initial transaction price is $200 million, with future earnout payments of up to $500 million over five years contingent on achieving certain milestones, including significant growth of in-store and online meal kit sales.
The deal comes as rival Albertsons begins a heavy retail rollout of meal kits associated with Plated, which it acquired last summer and in the wake of Kroger’s rollout of a proprietary brand called Prep+Pared. Kroger said Home Chef offerings would "complement" Prep+Pared kits now in 525 stores. Home Chef will assume responsibility for Kroger's meal solutions portfolio.
The online meal kit movement—which plays to customer desire for more convenience in both the preparation and fulfillment of daily meals—caught the grocery industry unaware, but the two categories have converged over the past year as online businesses seek safer financial footing and grocery stores run down a fast-growing category. In addition to the Albertsons-Plated deal last year, brands such as Blue Apron and Chef'd are now entering physical retail channels for the first time.
The Kroger-Home Chef deal comes just a week after the Cincinnati-based retailer made a big bet on online grocery in an exclusive deal with Ocado to build a series of dedicated fulfillment centers that would facilitate grocery home delivery.
“Customers want convenience, simplicity and a personalized food experience. Bringing Home Chef's innovative and exciting products and services to Kroger's customers will help make meal planning even easier and mealtime more delicious,” Yael Cosset, Kroger's chief digital officer, said in a statement. “This merger will introduce Kroger's 60 million shoppers to Home Chef, enhance our ship-to-home and subscription capabilities, and contribute to Restock Kroger.”
Home Chef posted $250 million in revenue and 150% growth in 2017, and has been profitable for two quarters, Kroger said. The company features “delicious and approachable meals that fit every taste preference” along with easy-to-follow recipes for every experience level. It boasts of offering the most variety among leading meal kit companies and going beyond the “one-size-fits-all” model to bring new innovations such as 5 Minute Lunches, flexible serving options and easy-to-prepare meals that require minimal prep.
“We’ve long believed that the future of our industry is omnichannel and bigger than just meal kits sold online. We want to be where our customers are and want to help make cooking at home easier, more accessible and even more enjoyable,” said Pat Vihtelic, founder and CEO of Home Chef. “We’re thrilled that we will be part of the Kroger family and plan to maintain our relentless focus on innovation that meets customers' evolving food needs. Kroger’s expansive retail footprint will allow us to serve millions ... more customers across the country with simple, convenient and enjoyable meal solutions.”
Home Chef employs approximately 1,000 employees and operates distribution centers in Chicago, Atlanta and San Bernardino, Calif. Its distribution centers reach 98% of all continental U.S. households within a two-day delivery window.
“As one of the fastest-growing meal kit companies in the country, Home Chef is poised for even more explosive growth,” said Cosset. “We admire their focus on the customer, culture of collaboration, dynamic experimentation and demonstrated financial success. Home Chef’s combination of culinary expertise and a customer data-driven decision-making process is right in line with Kroger’s vision to serve America through food inspiration and uplift by providing meal solutions for every lifestyle.”
After the deal closes, Home Chef will operate as a subsidiary of The Kroger Co., maintain its e-commerce business on homechef.com and assume responsibility for Kroger’s meal solutions portfolio. The company will continue to operate its offices and facilities.
Following closing, Kroger will make Home Chef meal kits available to Kroger shoppers, both in stores and online. Kroger said it expects the transaction, which will close in the second quarter, to have no effect on 2018 earnings, and to be slightly accretive in 2019.
Weil, Gotshal & Manges LLP is acting as legal advisor to Kroger, and Sidley Austin LLP is acting as legal advisor to Home Chef.